Development Co-operation Report

The annual report of the Chairman of the OECD Development Assistance Committee (DAC). It provides detailed statistics on and analysis of each member’s foreign aid programmes (offical development assistance - ODA) as well as an overview of trends and issues currently being discussed in the development community.

This edition of OECD's annual Development Co-operation Report provides key statistics and analysis on the latest trends in international aid. Eckhard Deutscher, who recently took over as Chairman of the Development Assistance Committee, reports back on the Accra High Level Forum on Aid Effectiveness and the need to step up our efforts to make aid work better for developing countries in this time of economic crisis. The report also addresses fragmentation, a major problem when aid comes in too many small slices from too many directions and - drawing on case studies from number of countries - offers five lessons on how the Paris Declaration on Aid Effectiveness can be used to make the link between development policy and human rights, environmental sustainability and gender equality.

The title of the Development Co-operation Report has traditionally carried the date of the year preceding its publication. We would like to alert readers to the fact that, as of this issue, the title will reflect the actual year of publication. This issue will, therefore, be entitled Development Co-operation Report 2009. Please note that this Report incorporates data submitted to the OECD up to 15 November 2008; these data correspond to flows in 2007.

There is no scarcity of worrying news on the global economy these days. This financial crisis is the worst since the Great Depression and resolving it represents one of the greatest challenges in recent decades. Hard lessons are being learned, first among them the fact that our leaders can only solve the crisis by working together. As a hub for dialogue on global challenges, a new, more plural and relevant OECD is helping to chart the way forward. Times are uncertain, but our commitment will not be found wanting.

This is the first Development Co-operation Report I have steered since taking up the position of DAC Chair in February 2008. This Report comes at a memorable – and particularly challenging – time in the history of the DAC. Just back from the Third High Level Forum on Aid Effectiveness in Accra, our view of what is needed to reach the Paris Declaration targets – and the Millennium Development Goals – is clearer than ever. At the same time, it is strikingly evident that more of the same will not get us there.

The Development Co-operation Report is issued annually by the Chair of the OECD’s Development Assistance Committee (DAC), a forum for major bilateral donors that enables them to work together to increase the effectiveness of their common efforts to support sustainable development. The report provides data on, and analysis of, the latest trends in international aid.

In recent years donor countries have made enormous efforts to meet the Millennium Development Goals, but if we are to prevent the financial and economic crises from undermining the hard-fought ground we have won, even more resources must be mobilised. We must also ensure the strategic relevance of development policy and its contribution to addressing the great challenges ahead. In this chapter the DAC Chair builds upon the urgent call made at the Third High Level Forum on Aid Effectiveness: the development community needs to make clear improvements in co-operation instruments.

Fragmentation is a serious obstacle to making aid more effective. In essence, fragmentation describes aid that comes in too many small slices from too many donors, creating high transaction costs and making it difficult for partner countries to effectively manage their own development. This chapter examines the extent to which aid is fragmented or concentrated, drawing on findings from the Report of the 2008 Survey of Aid Allocation Policies and Indicative Forward Spending Plans by the OECD-DAC. Flows are analysed using an innovative new aid measure, country programmable aid (CPA). As well as looking at the scale of the problem, this chapter also looks at some approaches to reducing aid fragmentation through a more effective "division of labour" among donor countries.

The international aid community places increasing emphasis on the role of developing countries in managing and allocating the aid they receive. However, these countries’ efforts are often frustrated by the unpredictability of aid – donors do not always reveal their spending plans early enough, or they fail to stick to them. The new Survey of Aid Allocation Policies and Indicative Forward Spending Plans by the OECD-DAC seeks to reduce some of the uncertainty by asking donors to indicate their future plans, offering a perspective on future aid flows that will help to identify gaps and opportunities in individual developing countries. The Survey tracks overall trends in aid since 2005, combining them with donors’ planning figures to project aid to 2010; it also looks at these projections in detail, by regions and individual partner countries. This chapter summarises the Survey’s key conclusions. It also presents the Survey’s findings on aid allocation and budgetary procedures in donor countries.

More than three years after its adoption, is the Paris Declaration on Aid Effectiveness living up to its ambitions? This chapter presents some answers to this question. It draws on the most recent evidence available, including the results of the 2008 Survey on Monitoring the Paris Declaration, the international Evaluation of the Implementation of the Paris Declaration and the Progress Report. This chapter shows that there is a robust body of evidence that the Paris Declaration is making progress, but not fast enough. Donors and partner countries need to gear up their efforts if we are to meet international commitments and targets for effective aid by 2010. The Paris Declaration has wide political resonance; its implementation requires high-level political commitment to generate the kind of traction that is still needed to deliver results.

The aims of development do not stop at poverty reduction: gender equality, human rights and environmental sustainability are also fundamental development objectives. These are not just goals – they are also important drivers of development in their own right. "Forget China, India and the Internet," says The Economist, "economic growth is driven by women." Still, for all the evidence of the benefits of incorporating these broader goals into the development agenda, it has often been difficult to do so in practice. That may be changing: evidence is emerging of how the implementation of the Paris Declaration can advance gender equality, human rights and environmental sustainability. Drawing on case studies from a number of countries, this chapter introduces five useful lessons on how the Paris Declaration can be applied in this way.

Aid continued to increase in 2007, once exceptional debt relief is excluded from the figures. But the increase was only 2% on 2006. This is much too slow if donors are to meet their commitments to increase aid by 2010.

Poverty reduction continues to drive the donor community and donors include achieving the MDGs among their key objectives. Donors focus on creating an enabling environment, on building growth, governance and stability needed to achieve the MDGs, and many build their programmes around achieving specific targets. Donors are beginning to reform their systems to implement the aid effectiveness principles and to meet the targets set in the Accra Agenda for Action. They have developed action plans, set up monitoring measures, and pay increased attention to results. They emphasise partner country ownership, and are employing new ways of working: some are trying delegated co-operation, joint programs, and especially direct budget and sector budget support. Donors are meeting their obligations to support the implementation of the Rio Conventions through the Global Environment Facility and the convention secretariats as well as through bilateral environment programmes. While most donors have an environment policy, applied in principle to all their aid, some have also established funds to address climate change and deforestation. In 2008, the DAC conducted four peer reviews – Australia, France, Norway and Luxembourg – as well as a special review of the Republic of Korea.

While the definition of Official Development Assistance has not changed since 1972, some changes in interpretation have tended to broaden the scope of the concept. The main ones are the recording of administrative costs as ODA (from 1979), the imputation as ODA of the share of subsidies to educational systems representing the cost of educating students from aid recipient countries (first specifically identified in 1984), and the inclusion of assistance provided by donor countries in the first year after the arrival of a refugee from an aid recipient country (eligible to be reported from the early 1980s but widely used only since 1991).